BY GEORGE HAY

Saudi Aramco finally pulled off its $25.6 billion initial public offering. Party time in Riyadh? Probably not, because the world’s biggest stock market listing has in one way accomplished the opposite of its intended goal.

The oil giant priced at the top of its range at a $1.7 trillion valuation, giving Saudi Crown Prince Mohammed bin Salman a bit extra to divert to Public Investment Fund, through which the kingdom hopes to diversify away from an economic dependence on oil. That recovers a little of the pride lost in abandoning plans to list at a $2 trillion valuation, and in selling only 1.5% on the local bourse rather than a previously mooted 5%.

A high price might have been an undiluted good had Saudi been able to sell a big chunk of Aramco to foreign investors. But only a portion of the offer ended up being sold to non-Saudis, with some of them likely to have been wealth funds from nearby Kuwait and Abu Dhabi. Although Aramco didn’t disclose the split when it announced its price on Thursday, non-Saudis made up 10% of the institutional demand a week earlier – and slightly more than that in the final analysis, according to a person familiar with the situation.

There were plenty of reasons for them to hang back, from Saudi’s poor human rights record to the fact that Aramco is unlikely to be worth more than $1.6 trillion, as Breakingviews has argued on numerous occasions.

That leaves the crown prince in a less-than-ideal position. For example, it suggests Saudi can’t count on an ecstatic reaction should it decide to part-privatize other industrial assets in future. More importantly, it turns Aramco stock into a political hot potato. It’s one thing if institutional investors get hosed by a falling Aramco share price, but another thing if retail punters who bought one-third of the stock – many funded by loans from local banks – suffer a similar fate.

With citizens’ wealth tied up in an investment whose valuation fluctuates publicly minute to minute, Saudi might find itself even more focused on ensuring maximum oil production, rather than improving the health of the general market. In that case, Aramco’s IPO won’t be a step away from fossil fuel dependency, but a step closer towards it.

First published Dec. 5, 2019